Anyone who reads this blog knows that my quest for financial freedom heavily relies upon disciplined saving and planning for retirement. Like many people, I am using my employer-sponsored retirement plans, IRA’s, and personal savings to build up a fortune that I can one day live off of.
All of that is fine and good in theory, but what if everything I just said was ALL WRONG! What if all the money I’m saving will one day be worthless? It sounds crazy, that’s exactly what one famous author is promoting in one of his new books.
• The US government has been devaluing the dollar since 1971 (when it came off the gold standard) (p. 3) and will continue to do so as our way of dealing with inflation and debt (p. 7).
• As a result, anyone with money idling in a 401k or retirement plan will be subject to the turbulence of the global economy, higher taxes, and inflation (p. 18); all of which will decrease the purchasing power of our savings.
• Therefore, he sums his opinion up by stating that “… savers will become the losers (p. 3)”.
Later on in the book, one of Kiyosaki’s guest contributors also tears down 401k plans (p. 133) claiming that:
1) They offer very low “true” diversification
2) They do not consistently perform well year over year
3) The fees are too high
4) They rarely ever do better than a simple index fund
So if you’re not supposed to put your money into a 401k, then what ARE you suppose to do?
Do what Kiyosaki does: Make your money off of real estate! Why? Because just like in the game Monopoly, Kiyosaki promotes that “4 green houses = 1 red hotel” (p. 32). Metaphorically speaking, he’s trying to show you that if you’re on the receiving end of another person’s expenses, you’ll have income for life. Why the red hotel? Because Kiyosaki doesn’t just buy up single family houses. He and his wife are at a level where they broker 144-unit, 10 acre apartment complexes (p. 105). In fact, he shows you an example of how he made $1 million dollars tax free on that very deal.
In all fairness to the book, Kiyosaki also repeatedly states that you fundamentally need to invest in your own financial education and find what works for you, whether it’s real estate, business ventures, paper assets (i.e. stocks), or commodities (i.e. gold).
Am I the Fool?
I have a ton of respect for Kiyosaki and was just as blown away as everyone else the first time I read “Rich Dad, Poor Dad”. But my personal style of investment is obviously a blatant disagreement with this point of view. I did not cancel my 401k and go buy an apartment complex downtown.
But let’s play this out. Am I the fool? Kiyosaki is a multi-millionaire! I am not!
For the sake of argument, let’s try to see how his perspective may be true:
• Kiyosaki is not the only author to predict that the US economy is heading for trouble. There are two different books both titled “Aftershock” that feel very strongly there is more trouble ahead in the future.
• Logic states that if there was inflation, the price of rent would rise with market prices. Therefore, the income you make on it would be protected from inflation.
• The last few decades have had some strange economic events – Black Monday in 1987, the dot.com bubble, the housing bubble, the Great Recession, etc. Why do we seem to keep having more and more of them?
• Stock prices continue to go up at a rate higher than company earnings or GDP. This trend cannot continue forever.
• Our National Debt is at an all time high! Unfortunately, the turbulence in Washington seems to demonstrate that there is no resolution in our future.
• Does everyone remember last Summer when the US debt rating got downgraded for the first time in history? Again, thanks Washington.
• 401k fees are expensive compared to simple index funds like Vanguard. Why can’t they be cheaper? Over time, this will erode our earnings.
• If you invest in a diversified portfolio of stocks, are you REALLY diversified when the entire stock market goes down?
• 2000 – 2010 is being called the “lost decade” because virtually all the earnings were wiped out. How much longer can we really use the historical 8% return to predict how much our portfolios will be in the future?
So what do you think? Have you ever considered that saving your money may NOT be the safest or best thing to do with it? Do you subscribe to Kiyosaki’s logic that we should focus on acquiring assets to generate wealth rather than our employment income? Please feel free to share.
1) Book Review: “Rich Dad, Poor Dad” by Robert T. Kiyosaki and Sharon L. Lechter
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